Bank lending slows down in July; M3 at P13.6 trillion

Published September 5, 2020, 5:00 AM

by Lee C. Chipongian

With low demand and restricted business operations, the country’s largest banks reported a drop in lending activity in July of 6.7 percent compared to 9.6 percent in June, the Bangko Sentral ng Pilipinas (BSP) said Friday.

 “The slowdown in bank lending can be traced to weaker corporate sector performance and declining loan demand, as the ongoing health crisis continued to constrain domestic economic activity,” noted the BSP. In July, the lockdown was less severe than in the months of March to May.  

 The BSP said domestic liquidity or M3 growth is slightly lower in July. The M3 grew by 14.5 percent year-on-year compared to June’s 14.9 percent. The total money supply stood at P13.609 trillion in July with “demand for credit (remaining) the principal driver of money supply growth,” said the BSP.

 Based on central bank preliminary data, the big banks’ outstanding loans –these are the universal and commercial banks — net of reverse repurchase (RRP) placements with the BSP on a month-on-month seasonally-adjusted basis, was down by 0.9 percent.

 The total outstanding loans amounted to P9.446 trillion to residents, and net of RRPs, P9.182 trillion.

 Also net of RRPs, lending to the production sector went up by 5.9 percent in July to P7.981 trillion. This was a slower growth compared to 8.2 percent in June.

 Under residents’ production loans, lending to real estate activities increased by 11.5 percent to P1.722 trillion while lending to information and communication and financial and insurance activities went up by 18.4 percent and 6.3 percent, respectively, to P380.259 billion and P887.145 billion.

 Loans released to electricity, gas, steam, and air conditioning supply also rose by 4.4 percent, while human health and social work activities was up by 46.7 percent and transportation and storage grew by 9.7 percent to P1.014 trillion, P83.971 billion and P298.194 billion, respectively.

 The BSP reported that total loans to households also expanded slower in July, or up 17.3 percent to P887.614 billion versus 27 percent growth in June. Credit card loans, as well as motor vehicle and salary-based general purpose consumption loans were lower in July.

 Credit card loans were steady, up by 27.4 percent to P409.069 billion while motor vehicle loans slowed to P381.463 billion or a growth of 9.6 percent from 28.5 percent in June. Loans tagged as general purpose salary loans went up by 11.3 percent in July from 13.4 percent in June to P80.804 billion.

 The BSP said its “measures to ensure the flow of credit to affected households and businesses are expected to gain further traction in the coming months and help drive lending activity. Sustained monetary and fiscal policy support should likewise help shore up market sentiment as the economy gradually reopens.”

 On a month-on-month seasonally-adjusted basis, domestic liquidity increased by 0.5 percent. Domestic claims was up by 12.3 percent year-on-year in July from 13.3 percent in June.

According to the BSP, the claims on the private sector which was “driven mainly by bank lending to non-financial private corporations and households, grew at a weaker pace due to constrained economic activity and soft corporate sector performance.”

In July, the net borrowings by the central government grew by 51.7 percent compared to 53.2 percent in June because of the government’s funding requirement for its initiatives against the COVID-19 health crisis, said the BSP.

 “The BSP  will  remain vigilant over domestic  liquidity  and credit  dynamics  amid the gradual reopening of the economy,” the central bank said. “The  BSP  remains prepared to  deploy all necessary measures to  ensure  that liquidity  and  credit remain sufficient  to support domestic demand amid the COVID-19 pandemic.”